SEC Drops $2 Million Bombshell on Cumberland DRW, Unregistered Securities Dealings Exposed

An event that may derail the cryptocurrency market, according to official reports, the US Securities and Exchange Commission (SEC) has sued Cumberland DRW, a crypto market maker. The legal complaint, filed in the US district court in Washington state on October 10, 2024, alleges that Cumberland was conducting securities transactions in a security that was not registered as required by law.

Crypto sources reveal that the charges stem from the company’s failure to register with the SEC as a securities dealer before engaging in buying and selling of the crypto assets. SEC’s complaint included five popular cryptocurrencies including Polygon (POL) and Solana (SOL) among others.

Cumberland on the Spot Over Selling Unregistered Securities

This lawsuit alleges that Cumberland DRW has violated federal securities laws by functioning as an unregistered securities dealer. In the filing, the regulator accused Cumberland of enabling trades with cryptocurrencies that fall under the securities category in the United States. The SEC said this breached the Securities Exchange Act of 1934, which requires any company with securities to do so with the commission.

In the specific case, the regulator stressed that Cumberland was engaged with cryptocurrencies which were sold as investment contracts – securities. As the SEC complaint put it, “Statements made by the issuers and promoters of the Cumberland-Traded Assets – including those relayed by Cumberland – would have made a rational investor reasonably believe that these assets are securities.” The five named cryptocurrencies are Cosmos (ATOM), Algorand (ALGO), and Filecoin (FIL).

Cumberland DRW, reportedly disseminating these assets through email-reports, gave an undertaking to investors to sell the assets in the hope of making a profit. For example, the SEC attracted attention to the message by Cumberland to its clients in February 2023: “ATOM is up ‘only’ 53% YTD, to raging fundamentals and a healthy developer community; it’s a name where we expect to see a catch-up rally if crypto remains buoyant.” According to the SEC, such statements were to lure investors, which is an element in defining such assets as securities.

Cumberland Pushes Back Against SEC Allegations

Nonetheless, Cumberland DRW has refuted the SEC charges it received with reckless abandon, asserting no liability. The company replied to the lawsuit via its post in X (former Twitter), where it said that it does not plan to change the nature of its business or the assets it offers liquidity to. ‘This action by the SEC does not in any way affect our business operations or the assets offered cash liquidity,’ said the company.

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Cumberland also presented a strong argument based on the fact that the company complies with all the existing legislation. ’It is equipped in its capability to assure impeccable compliance standards and compliance with all the rules and regulations as known,’ the company said. Cumberland also noted that great variability has characterized the regulation of cryptocurrencies in the market. ‘Still even as they have been a moving target (it was not long a go ETH was said to be a security),’ the firm noted.

The SEC’s Ongoing Crackdown on the Crypto Industry

That is why the lawsuit of the SEC to Cumberland DRW is continuation and continuation of actions to bring order in the cryptocurrency market. The regulator has lately been more assertive in enforcement, especially against companies they claim engage in selling unregistered securities.

The grounds on which the SEC based its decision to consider these five cryptocurrencies as securities were described in its complaint; they referred to statements of the project’s founders and developers. Some of these were white papers and other marketing documents that, as the SEC argued, held out future earnings to investors. For securities law in the U.S., any sale that includes an expectation of profits from the work of others is a security.

Cumberland is now on the receiving end with the SEC seeking a permanent injunction to prevent it from ever engaging in any unregistered securities activities again. The regulator is also asking for the return of all; the profits that Cumberland made through trading in these alleged securities. This could translate to millions of dollars of penalty and wasted revenues in the company.

Conclusion: Cumberland DRW and the Future of Cryptocare

As the SEC’s focus on the sector is increasing, Cumberland DRW is challenged with the pressure of asserting itself in court. It should be a wake-up call to other market players involved in the provision of related services to embrace the regulation of the market, with SEC intensifying its efforts in the market. Cumberland is one of the largest market makers in the crypto industry, and the case against it could become a major legal milestone in how cryptocurrencies will be governed in future.

The outcome of this case has implications for investors, firms, and regulators because the future of crypto regulation remains unknown. As much as it is uncertain whether the SEC will triumph in its case against Cumberland or whether the company will be able to put up a good defence is anyone’s guess. Keep following TheBITJournal and keep an eye on crypto regulations and developments.

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